Step aside long-time hedge fund hotel darlings Apple and AIG, and make room for Government Motors, which with a record 196 hedge fund owners, is now the biggest recently bankrupt hedge fund darling du jour. We wish GM, and its record number of “smart money” holders the best in continuing their channel stuffing “expansion” strategy.
Of course, the fact that virtually everyone and the kitchen sink is already in GM, means that there is little possible upside from here as all the fast money is already in, and at best can only depart on even the slightest deviation from perfection pricing (and with China cracking, and local demand for discretionary purchases plunging, GM will be one of the first casualties).
Which brings us to the second table: that of the most shorted, and hated, stocks by hedge funds. Recall that as we have shown time and again, the only guaranteed strategy to generate alpha in a market in which there is no risk (thank you Charmanwoman), is to be long the natural hedges – the worst, most horrible companies around. We noted as much most recently in September 2013 when we reflected on the one year anniversary of our “go long the most shorted trades” idea from September 2012. As the chart below confirms, doing precisely this has generated a return some 40% higher than the S&P 500 itself.
So where will the hedge fund pain be in the coming months, as the Fed tapers only to realize it can’t untaper in a world in which the unwind of rhte carry trade means Lehman 2.0 (see China) and the end of the capital markets as we know them, and thus the Untaper?
Presenting the most shorted, according to Goldman, stocks by hedge fund experts.
Anyone going long these names is virtually assured to outperform the market over the next year.